QPP for Existing Buildings vs New Construction

New construction manufacturing buildings placed in service after December 31, 2017, can qualify for QPP if designed and built for production use. QPP new construction rules require that the building meet the qualifying activity test, production use percentage threshold, and structural integration requirement. Purpose-built production facilities typically satisfy these requirements based on their design specifications.

New construction offers the clearest path to demonstrating structural integration because the building is designed from the ground up for production activities. Architectural plans, engineering specifications, and building permits document the production-specific design elements, making it straightforward to support the QPP position with contemporaneous evidence.

For background on QPP qualification requirements, refer to the Qualified Production Property overview. This article focuses on how QPP existing buildings vs new construction differ in application and documentation.

Acquired manufacturing property QPP eligibility depends on whether the existing building meets the QPP requirements at the time of acquisition and placement in service by the new owner. The building must have been used for qualifying production activities, demonstrate structural integration with production, and meet the production use percentage test.

Existing buildings acquired after December 31, 2017, can qualify for QPP even though they were previously placed in service by the prior owner. The relevant placed in service date for the acquiring owner is when the building is ready and available for production use under the new ownership. This allows acquired manufacturing facilities to benefit from the 20-year recovery period.

Placed in service requirements QPP establish when the property becomes eligible for depreciation. For new construction, the placed in service date is when the building is substantially complete and ready for its specifically assigned production function. Minor finishing work or equipment installation does not prevent placed in service determination if the building can be used for production.

For acquired existing buildings, the placed in service date is when the property is ready and available for use by the acquiring owner. This may be the acquisition date if the building is immediately usable for production, or a later date if modifications or startup activities are required before production can begin.

The placed in service date affects both QPP eligibility (must be after December 31, 2017) and bonus depreciation percentage (based on the year placed in service). Coordinate with your CPA to properly determine the placed in service date based on your specific facts.

QPP retrofit eligibility applies when an existing building is substantially modified to support production activities. If the retrofit creates structural integration with production and the renovated building meets the production use percentage test, the property can qualify for QPP treatment. The placed in service date for the retrofitted building is when the renovation is complete and the building is ready for production use.

Substantial retrofits that create production-specific building systems, modify layouts for manufacturing workflow, install specialized utilities for production, and integrate the structure with production equipment can demonstrate the required structural integration. Minor cosmetic renovations or tenant improvements without production-specific modifications typically do not meet the structural test.

Retrofit Considerations for QPP

• Scope of Work: Substantial modifications creating production-specific features support QPP better than minor improvements.
• Building Systems: Installation of industrial HVAC, heavy electrical, specialized utilities demonstrates integration.
• Structural Changes: Reinforcement for equipment loads, layout modifications for production flow support QPP qualification.
• Documentation: Renovation plans, engineering specifications, permits document the production-specific nature of the retrofit.

The distinction between original use and acquired property affects bonus depreciation eligibility but not QPP qualification itself. QPP applies to both new buildings placed in service for the first time and existing buildings acquired and placed in service by new owners, provided the QPP requirements are met in both cases.

For bonus depreciation purposes, original use property (new construction) qualified for 100% bonus during the applicable period without restriction. Used property acquired after September 27, 2017, could also qualify for bonus depreciation under expanded used property rules, subject to the used property limitations and acquisition requirements in effect for the placed in service year.

Documentation for new construction QPP typically includes construction contracts, architectural and engineering plans, building permits, specifications showing production-specific design elements, and certificates of occupancy establishing the placed in service date. These documents demonstrate the building was designed and built for production use.

Documentation for acquired buildings requires evidence of the acquisition, building assessment showing structural integration with production, operational use descriptions demonstrating qualifying activities, and analysis of the production use percentage. Engineering studies can support the QPP position by evaluating whether the acquired building meets the structural integration test.

QPP renovation qualification planning should consider the timing and scope of modifications relative to QPP requirements. Substantial renovations creating production-specific features can transform a non-qualifying building into QPP-eligible property. Manufacturers evaluating facility expansions or retrofits should engage tax advisors early to structure the work to support QPP qualification.

For new construction projects, incorporating QPP planning into the design phase ensures the building meets all requirements and documentation is prepared contemporaneously. For acquisitions, pre-purchase due diligence should evaluate QPP eligibility to factor the tax benefit into acquisition pricing and investment returns.

For guidance on depreciation treatment and recovery periods for QPP, see QPP Depreciation Treatment and Recovery Periods. For broader depreciation planning strategies, refer to the cost segregation overview.